Top Stories in Business & Health for July 10, 2017 

Walgreens calls it quits on attempted Rite Aid merger but will buy $5.18 billion in assets

With federal regulators indicating that they would be unlikely to approve the merger between Walgreens Boots Alliance and Rite Aid, the companies decided they will no longer pursue their attempts to combine the two chains. However, Walgreens is buying nearly half of Rite Aid’s stores—2,186 of 4,600—as well as three distribution centers, for $5.18 billion, The New York Times reported, noting that Walgreens already had 8,175 stores before agreeing to buy the additional ones. The sale of the stores is expected to close by the end of the year. Rite Aid will receive a $325 million termination fee associated with the merger agreement. In addition, Rite Aid will be able to purchase generic drugs through a Walgreens affiliate, giving it access to the lower prices Walgreens is able to obtain.  

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Kindred to sell skilled nursing business for $700 million in cash

Kindred Healthcare, based in Louisville, Ky., signed a definitive agreement to sell its 89 nursing centers and seven assisted living facilities to joint venture company BM Eagle Holdings for $700 million in cash. When additional factors such as tax benefits and working capital liquidation are taken into consideration, Kindred said the transaction could be worth up to $910 million. Last November, Kindred agreed to buy the real estate for 36 of the 89 skilled nursing facilities from Ventas for $700 million and maintained the right to find buyers for those properties through October 2018. As Kindred closes on the sale of the properties, it will pay Ventas, who in turn will transfer the real estate to BlueMountain Capital Management. Pending regulatory approval, the transaction is expected to be completed by the end of the year. The facilities being sold are located in 18 states and employ approximately 11,500 people, Home Health Care News reported, adding that Kindred will retain a skilled nursing facility it owns in Las Vegas, along with hospital-based subacute units. 

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Overall insurer losses on individual health plans eased in 2016

A new report by McKinsey & Co. offers insight into insurers’ performance in the individual market in 2016. Overall, those who sold individual insurance plans, both on and off the exchanges, appear to have had some improvement in their margins relative to 2015, according to the McKinsey estimates. In aggregate, estimated losses in the market amounted to approximately 7 percent to 9 percent of premiums in 2016, compared with 10.1 percent in 2015. The slight improvement is attributed to an increase in enrollment of approximately 3 percent and “somewhat higher” revenues. Nonetheless, the estimates show that insurers altogether lost between $5.5 billion and $7.5 billion in 2016. That compares with a loss of $7.2 billion in 2015. The nonprofit Blues saw the most improvement, with post-tax margins of between -4 percent and -7 percent in 2016, compared with -11 percent a year earlier. Large national insurers such as Anthem and Aetna, on the other hand, saw their post-tax margins worsen, from -7 percent in 2015 to between -9 percent and -12 percent in 2016. 

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CMS releases 2016 risk adjustment, reinsurance report 

Several Blues-affiliated plans also fared well in 2016 in terms of the Affordable Care Act (ACA)’s risk adjustment and reinsurance programs, according to a report by the Centers for Medicare and Medicaid Services (CMS). For example, Florida Blue will receive $615.7 million in payments from the two programs, and Blue Shield of California will receive $572 million. Other large insurers were not as fortunate: California Kaiser Foundation Health Plan owes $437.8 million in risk adjustment payments and Molina Healthcare owes $544 million. Many smaller insurers and co-op plans were also hit with large risk adjustment payments, with some owing more than $20 million. In some cases, payments from the reinsurance program will help offset what is owed in risk adjustment payments. In all, 445 insurers will receive reinsurance payments totaling $4 billion for plans sold in 2016. 

The reinsurance program, which protects insurers against excessively high claims, ended in 2016, but the risk adjustment program is permanent. That program is designed to prevent insurers from cherry-picking healthier members over those who are sicker; payments collected from plans with healthier-than-average members are distributed to plans with high-cost members. CMS said the programs are working as they are intended to.

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Senate continues attempts to build support for BCRA

In an effort to appease insurers, Senate Republicans revised the Better Care Reconciliation Act (BCRA) to include a “continuous coverage” provision that adds a penalty for people who allow their insurance to lapse for 63 days or longer. Specifically, individuals who exceed the designated lapse period would be locked out of obtaining coverage for at least six months after they sign up. The provision is designed to address the BRCA’s lack of an ACA-like individual mandate, which most Republicans want to scrap. A Congressional Budget Office (CBO) analysis of the BCRA projects cuts in federal Medicaid spending of 35 percent over the next two decades. An estimated $770 billion would be trimmed from the Medicaid program in the next 10 years alone. Those cuts pose a significant threat to the long-term profitability of health plans that cover 55 million people through Medicaid-managed care plans, U.S. News & World Report noted, citing Paul Ginsburg, director of public policy at the University of California’s Schaeffer Center for Health Policy and Economics. The CBO analysis also explored how the BCRA would affect individual states, revealing that “the Republican strongholds of North Carolina, Oklahoma and Florida [would] be hardest hit by the coverage cutbacks,” according to U.S. News & World Report.

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Can the Cruz amendment push Senate health care bill over the finish line?

Senator Ted Cruz, R-Texas, has proposed an amendment to the BCRA that might garner sufficient support among Republicans to pass the bill. The “consumer choice” amendment would permit insurers to sell stripped-down health plans on the exchanges that do not comply with the ACA, as long as they also offer at least one plan that is compliant. The noncompliant plans could eliminate essential health benefits and pre-existing condition protections. The amendment, however, might not meet reconciliation guidelines. That would through a wrench into the works, as Republicans are attempting to repeal and replace the ACA through budget reconciliation to avoid a Democratic filibuster. 

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FDA takes steps to increase generic drug competition, eliminate backlog of orphan drug designation requests

The Food and Drug Administration announced that it has taken an immediate, multi-pronged approach to increasing competition in the prescription drug market and improving patient access. First, the agency published a 10-page list of more than 200 off-patent, off-exclusivity branded drugs with no approved generic alternatives, with the goal of encouraging generic drug development. Then, it implemented a new policy to expedite the review of generic drug applications for products on that list. Further, the FDA changed its policy regarding how the agency prioritizes reviews of generic drug applications. It will expedite the review of applications until there are three approved generic drugs for a given drug product.

Separately, the FDA revealed a plan to eliminate its backlog of orphan drug designation requests within 90 days. The agency currently has approximately 200 requests awaiting review. The Orphan Drug Modernization Plan involves developing a “Backlog SWAT team” of senior reviewers who will focus exclusively on the requests, starting with the oldest ones, and using a new, streamlined review template to improve the consistency and efficacy of the review process. 

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Other News

The Institute for Clinical and Economic Review (ICER) will assist the Department of Veterans Affairs (VA)’s pharmacy benefits management services office in choosing which drugs the VA will cover and in negotiating the prices the VA will pay for those drugs, FiercePharma reported. ICER is a Boston-based independent nonprofit organization that evaluates new drugs and issues reports indicating at what price point a drug is worth its cost. The organization has made significant revisions to its methodology since the beginning of the year based on feedback from drugmakers, payers and other stakeholders, FiercePharma noted.

California’s $400 billion proposal for universal health care has been put on hold. Although the state Senate passed the bill, Assembly Speaker Anthony Rendon, D-Paramount, shelved the bill, saying he supported the concept but the bill was “woefully incomplete,” The Mercury News reported. The bill will remain in the Assembly Rules Committee “until further notice,” Rendon said, adding that the Senate can use the remainder of the current two-year legislative session to “fill in the holes in SB 562 and pass and send to the Assembly workable legislation that addresses financing, delivery of care and cost control.” 

A U.S. District judge ordered the state of Illinois to pay $586 million per month for Medicaid vouchers received after June 30, along with another $2 billion over the next 12 months toward the $3 billion-plus backlog of payments the state owes to managed care organizations that process payments to Medicaid providers. In separate news, Aetna’s Medicaid subsidiary, Aetna Better Health, notified the state of Illinois that it intends to terminate its Medicaid contracts. The state owes Aetna Better Health at least $698 million, Crain’s Chicago Business reported.

Accountable care organizations (ACOs) continue to grow, both in terms of how many exist and the number of lives they cover, according to an analysis by Leavitt Partners published in a blog post by Health Affairs. As of the end of the first quarter of this year, there were 923 active ACOs in the U.S. covering 32.4 million lives. Since the first quarter of 2016, 138 new ACOs started up and 46 dropped their contracts, resulting in net growth of 11 percent. More than 10 percent of the U.S. population is now covered by an ACO. 

Centene Corp. will step in to fill the void left in Missouri’s ACA exchange after Blue Cross and Blue Shield of Kansas City opted not to offer individual plans for 2018 in a 32-county service area in Kansas and Missouri. Centene, whose headquarters are in Missouri, will offer plans in 40 counties in the state. If Centene or another insurer had not taken action, 25 counties would have had no options on the state exchange for 2018. In separate news, Anthem said it would exit the individual market in Nevada in all but three counties in 2018. That decision will leave approximately 8,000 residents in 13 counties and Carson City without a marketplace insurer. 

The FDA placed a clinical hold on three trials Merck is conducting of Keytruda (pembrolizumab) in patients with multiple myeloma. Study investigators have been evaluating the drug’s efficacy in combination with standard treatments for the disease. The decision to halt the trials stemmed from a review of data showing that more patients in the Keytruda dosing groups have died as compared with the control groups. The FDA determined that the risks of combining Keytruda with existing multiple myeloma treatments outweigh any potential benefits for this patient population. Merck said patients in the trials will discontinue treatment with Keytruda.